Stealth charges leave tenants fronting the cost of tenancy deposit schemes

News

03 April, 2008

The cost of ring-fencing tenancy deposits in government approved tenancy deposit schemes are being passed by landlords on to their tenants in the form of administration fees.

Some private landlords are charging tenants up to £100 to reimburse their involvement in the protection schemes.

There are essentially two kinds of tenancy deposit protection schemes. Whilst 'custodial-based' schemes require the landlord to hand over tenants' deposits to a third party, at no extra cost, 'insurance-based' schemes allow the landlord to keep hold of the money upon the condition that they pay a premium to insure it in the event of a dispute. Thus if a private landlord elects to use the insurance-based scheme they are free to dispose of the deposit as they see fit, and only have to bear the cost of the premium. It is the cost of this premium that they are passing on to the tenant.

From a legal stand point, there is nothing in the appropriate legislation that says that landlords cannot pass on these charges. Yet, whilst not unlawful, this practice does raise the question as to whether it is morally just.

Many landlords argue that charging a fee to the tenant, to cover the cost of the deposit scheme when setting up a tenancy, is simply the natural order of things. Prior to the introduction of the scheme in April 2007, landlords had expressly warned the government that such schemes were unnecessary. Their pleas were ignored and they were left holding the bill for something they hadn't asked for. As such, it is the popular landlord opinion that it should be the end user who ends up paying for it. If tenants enjoy the benefit of having their deposit protected, then it should be them that pay for the privilege.

Many landlords contest that in the main their tenants are happy to pay. For a relatively small fee they are kept safe in the knowledge that not only is their deposit insured but could get the cash back immediately to secure a new contract.

Another argument, defending the practice, draws from the simple commercial reality that all businesses pass on costs to the customer. Why should landlords act any differently? Ultimately landlords operate akin to business and cannot afford to be charitable if they expect to compete in the market place.

However, understandably, these defences have fallen upon the deaf ears of the many critics of the current practice.
Many feel that it takes advantage of the tenant, who is in a considerably weaker position in light of the current political climate and the lack of affordable housing. The government intended that this protection should be freely available to tenants; however the current practices seem to effect the tenant detrimentally.

Whatever your viewpoint as to the morality of administration fees, it is hard to argue against the potential impact the practice could have against tenants. A quarter of households that make up the private rented sector have an income of less than £200 a week. Deposits themselves already represent a substantial amount of money when renting accommodation. There are substantial worries that extra administrative charges that compound this outlay further, could contribute to pricing low-income families out of the private housing sector completely.

For further information please contact Stuart Penswick, Lachlan McLean or Sam Gorrell in the Housing Litigation team on 01772 220022.

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